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Tax Saving Investments: How to Save Income Tax?

Tax Saving Investments are a vital part of one’s life as they offer tax deduction under the Income Tax section 80C or 80CCC. Owing to the utility of these investments, more and
more people frequently want to invest. However, it should be taken into account that the investments have low returns and different risks associated with various investments.

The tax-saving session starts from 1 April for both salaried and non-salaried taxpayers. As a smart investor, one should look for tax saving investments, which not only provides the
benefit of tax exemption but also helps to earn tax-free income. There are many smart ways to save taxes and enjoy the maximum savings possible. A smarter approach is to start investing in the early quarters of the financial
year so that one can get enough time to plan judiciously and can avail the maximum returns on investment from different tax-saving investments.

While choosing the right tax-saving investment plans it is important to consider factors like safety, returns, and liquidity. Also, it is important to keep a proper understanding of
how the returns will be taxed. If the returns on investment are taxable, then the scope to create wealth over the long-term gets constrained.

Best Tax Saving Investment Options Under Section 80C

Before checking out the list of the best tax-savings scheme, it is imperative to know about the most important section of the Online Income Tax Act, i.e. Section 80C. A number of tax-saving
investments plan work as per the parameters of section 80C of the Income Tax Act. According to this section, the investments made by the investor are eligible for tax exemption up to a maximum limit of Rs. 1, 50,000.

There are various tax saving investment schemes available in the market which confuses people on which one to choose that best suits them. Some commonly used schemes include ELSS (Equity
Linked Saving Scheme), Fixed Deposits, Life Insurance, Public Provident Fund, National Savings Scheme and Bonds. There are very few investment avenues that assures a further tax deduction, over and above this limit. Let's
take a look at the best tax-saving investments under section 80C of the Income Tax Act.

Investment

Returns

Lock-in Period

ELSS Funds

15% - 18%

3 years

National Pension System (NPS)

12% -14%

Till Retirement

Public Provident Fund (PPF)

7% -8%

15 years

Unit Linked Insurance Plan (ULIP)

Returns vary depending on the plan

5 years

National Savings Certificate

7% - 8%

5 years

Senior Citizen saving scheme

8.7%

5 years

5 Year Bank Fixed Deposit Scheme

6% - 7%

5 years

ELSS Funds - They are one of the best tax saving mutual funds that are linked to equity. The investment is done in
equity, projecting higher returns of about 15% in the long term. However, there is no guarantee for such returns but the track records show that they are achievable.ELSS tax savinginvestment offers the lowest lock-in period of just three years. The dividend option can be
opted to enjoy regular returns during the lock-in period. The returns and capital gains in this fund are tax-free. The deduction can be claimed under section 80C easily. ELSS is the best investment plan which helps to save
tax and provides substantial returns.

National Pension System (NPS) - The contributions under NPS can be claimed as a deduction under section 80C of the Income Tax Act. Also, low-cost investment options are available and the returns are also provided somewhere between 3%
to 10%. The only downside of NPS is its restrictions due to which it is not usually recommended. The withdrawals are taxable along with the maturity amount. The funds can be accessed only after retirement.

Public Provident Fund (PPF) - Making an investment in PPF is probably one of the best options to save tax under 80C. It is the best fit for those who want to save funds for their retirement. PPF allows a contribution up to Rs. 1,50,000,
which can be done by making small investments or lump-sum. Rate of interest is defined by the Ministry of Finance periodically and the interest earned is tax-free. The lock-in period for PPF is 15 years. After the completion
of five years, you can withdraw the amount but certain conditions will apply.

Unit Linked Insurance Plan (ULIP) - Section 80C provides tax exemption for investing in ULIP also. This scheme is a combination of investment and insurance which is eligible for tax exemption. It covers the risk but doesn’t guarantee any
returns. The returns can range from 5% to 11% depending upon the scheme.

National Savings Certificate - This is a fixed income tax saving investment scheme, which is available at any post-office. The National savings certificate guarantees safety as it is a government-initiated savings scheme. The plan is specially
designed for mid-income investors to make investments along with the benefit of taxability of income. The National Savings Certificate (NSC) is also considered as a low-risk tax saving investment option that offers guaranteed return on investment along with the benefit of transparency
and ease of investment.

Senior Citizen saving scheme - SCSS, as the name implies is designed for the senior citizens to save tax. Citizens who are above 60 years of age can make an investment under this scheme. The interest is taxable, but it is mostly covered
in the taxable limit. The maximum investment limit is Rs. 15 lakhs and the lock-in period is 5 years. It is also a safe investment option as the Government backs up the principal amount. Senior citizens can enjoy quarterly
interest returns. The interest rate is defined by the Ministry of Finance from time to time. The deduction is allowable under section 80C.

5 Year Bank Fixed Deposit Scheme - One of the best tax saving schemes under section 80C of the Income Tax Act, 1961. Similar to the fixed deposits, this scheme also has a 5 years lock-in period. The amount invested cannot be withdrawn during
the lock-in period. It usually provides a higher interest rate compared to the regular FDs. The interest earned at the end of 5years is completely taxable.